What does an investment consulting actuary do?
In this blog, Lucy Barron, Partner, Investment Consulting at Aon and Head of Investment Risk Settlement team, talks about how actuarial skills are necessary for her role and discusses her own career path.
What does an investment consulting actuary do?
We help pension scheme trustees and sponsoring companies to set the right investment strategy so that the pension scheme’s assets are sufficient to pay pensions now and in the future. To do this we need to understand the trustees’ investment beliefs, the current funding position and financial strength of the company, as well as determining the longer-term objectives (e.g. some schemes are looking to keep running indefinitely, while others are looking to be well funded enough to secure all the pension payments with an insurance company – ‘buyout’). Our advice is designed to help schemes generate the investment return they need, without taking too much risk and to make sure assets are sufficiently liquid to pay members’ benefits as and when they fall due. After setting the strategy, we help schemes choose the right combination of investment managers to deliver the required investment return and we monitor progress. The investment approach used will differ between schemes as trustees make more or less use of active or passive management and of different asset classes. Aligning trustees’ responsible investment policies with companies’ strategies on Environmental, Social, and Governance issues (ESG) (eg. setting Net Zero targets) is also becoming increasingly important when setting strategy and selecting managers. The skill is for the investment consulting actuary to bring all the different aspects together into a coherent investment strategy that delivers for each scheme.
How does this role make use of actuarial skills?
The role makes use of all of the key actuarial skills. In particular, you need to be a numerate person and have a good understanding of investment markets and economics. The key is to be able to communicate complex areas of investment to trustees of pension schemes – many of whom do not have a background in finance – in order that they understand well enough to make decisions. Risk management is also important; we model risk and potential outcomes stochastically or by using scenario analysis. The investment consulting actuary needs to be able to assess and communicate these modelling results as well as to advise on alternate strategies to mitigate and manage the risks highlighted. Most UK pension schemes also set investment strategies where a portion of the scheme’s assets is invested in Liability Driven Investment (LDI) - bond-like assets which move in line with changes in the value of the scheme’s liabilities. An understanding of the way liabilities are measured and move with changes in interest rates and inflation is therefore extremely helpful.
What does your typical day/week look like?
There is real variety and no day or week is the same. In periods of significant market volatility - like March 2020 and again right now - more time is spent monitoring the funding position, responding to market events, and trying to capture opportunities, than when things are calmer. That said, on average I probably spend around 40% of my time with clients in meetings (with a 2/3, 1/3 split in-person versus virtual right now). Most schemes still have quarterly meetings, sometimes scheduled up to a year in advance, which cover regular ongoing work, as well as ad hoc project meetings and client calls. Each meeting is different given that every scheme has its own funding strategy and long-term objective. For some clients, I work with the company that sponsors the scheme and for others with the trustees - this may be a group of individual trustees or a sole professional trustee. I also attend regular internal meetings, such as the market update call every Tuesday morning in which Aon’s Asset Allocation team provides an update on key economic and market developments. I also normally attend one to two training sessions every week which can cover regulatory developments or asset class views. As well as spending time preparing advice for clients and managing my team internally, I also lead our advice on helping clients prepare their assets for buyout, working closely with Aon’s specialist risk settlement team.
What do you enjoy about your role?
I love the fact that the work I do is making the future pension income and financial wellbeing of hundreds of thousands of pension scheme members more secure and helping the companies that provide the pension schemes manage the associated risks. I like that there is so much variety in the advice I provide - finding the right strategy for a scheme that needs their assets to work hard to generate return, is different to the advice for a scheme that is well-funded and wants to reduce risk to protect that well-funded position. I also learn from my clients every day. My clients operate across a broad range of industries and hearing about how issues such as inflation, supply chain dynamics and employment challenges affect their business and targets helps me to tailor my advice and become a better consultant. I also love working with my Aon colleagues who have a wide range of expertise and views for me to draw on.
What was your career path into this role?
I might be the only person whose careers advice at school was accurate – being an actuary was always flagged as a possible career path given my preference for Maths over essay writing! I was lucky enough to secure a summer internship in June 1998 with some pensions actuaries and that cemented my desire to join this industry. A lot has changed since then - we had to calculate transfer values for members with pen and paper, had whole rooms just for filing and our main method of communication was the post (snail-mail rather than e-mail)!
I don’t regret my choice at all and I’ve had the opportunity to work in many different areas whilst continuing to advise pension schemes. I spent my first five years working as a pensions actuary, valuing scheme liabilities, before transferring internally into a role as an investment consultant. I was lucky to get the opportunity to combine my investment and liability knowledge as some of my clients were among the earliest adopters of LDI strategies. Having built up specialist expertise in this new area of investment I then took the opportunity to work in a client-facing role as an investment manager and spent nine years in asset management working with trustees and investment consultants to implement their strategies. In 2017 I decided to move back into investment consultancy as I wanted to build deeper relationships with a smaller number of clients and advise on all aspects of investment strategies rather than just the single area of LDI.
And what do you like to do when not working?
Watching, playing, and coaching sports - in particular cricket, football, tennis, and anything else where there is an exciting rivalry or competitor back story. I have two primary school-age children which means a disproportionate time is taken up at weekends with class parties and seeing the same groups of parents in differing locations. The children have also given me a great opportunity to coach sports, including cricket, which is something I didn’t have the opportunity to play at school but where I now help run sessions for under 8s. On the back of that, I have just helped to set up a local women’s softball cricket team.